What is Absolute Return? Absolute return can be defined as the return, i.e., absolute gain or loss, an investment generates over a specific period of time. The gain or loss is expressed as a percentage of the total investment. How is Absolute Return Calculated? Absolute return is calculated as follows: Say, for example, an investor…
What is Beyond Budgeting? Beyond Budgeting is the idea of abolishing traditional budgeting processes to eventually improve management control over an organization. By abandoning traditional budgeting processes, a company aims to establish a highly decentralized organizational system and adaptive set of management processes. Rationale Behind Beyond Budgeting The rationale behind the Beyond Budgeting framework is…
What is the Housing Expense Ratio? The housing expense ratio is a ratio that compares housing expenses to earnings before tax (EBT) or pretax income. The ratio is often utilized in credit analysis initiated by lenders during the lending process. In other words, lenders, such as banks, use the ratio during due diligence while qualifying a…
Who is a High Net Worth Individual (HNWI)? A high net worth individual (HNWI) refers to an individual with a net worth of a minimum of $1,000,000 in highly liquid assets, such as cash and investible assets. Individuals with less than $1,000,000 but more than $100,000 are called mass affluent investors. A very high net…
What is Corporate vs Personal Income Tax? In this article, we will discuss corporate vs personal income tax. Corporate tax is an expense of a business (cash outflow) levied by the government that represents a country’s main source of income, whereas personal income tax is a type of tax governmentally imposed on an individual’s income, such…
Who are Short-Term Investors vs Long-Term Investors? In this article, learn more about short-term investors vs long-term investors. Short-term investors are investors who invest in financial instruments intended to be held in an investment portfolio for less than one fiscal year. Conversely, long-term investors represent people investing in long-term financial instruments that they hold for…
What is Myopic Behavior? Myopic behavior represents the behavior of an investor who acts in accordance with what he or she wants right now. In other words, investors demonstrate myopic behavior when they care only about short-term results with absolutely no consideration of how a certain action may affect them in the future. Myopic investors…
What is a Capital Note? A capital note is a short-term debt instrument (security) mainly issued by a corporation to pay off short-term obligations that are due in less than one fiscal year. Since capital notes are unsecured fixed-income securities, an investor bears a high level of risk from buying the notes. Capital noteholders are…
What is a Convertible Note? A convertible note refers to a short-term debt instrument (security) that can be converted into equity (ownership portion in a company). Convertible notes are often used by seed investors who invest in startups. They are structured as loans to convert them to an equity stake in the company in the…
What is a Mortgage Bank? A mortgage bank is a bank specializing in mortgage loans. It can be involved in originating or servicing mortgage loans, or both. The banks loan their own capital to borrowers and either collect payments in installments along with a certain rate of interest or sell their loans in the secondary…
